Bibi's bind - politics or peace?

Israel PM Benjamin Netanyahu is deep in talks with the US over a two-state solution.

Reuters: Larry Downing

How the Israeli PM balances his desire for a peaceful solution with Palestine with his need to calm the ultra-right faction at home will reveal how much he supports the two-state solution, writes Lisa Main.

John Kerry's relentless pursuit of a peace agreement may not deliver the goods but it will answer a key question: is Israel truly committed to a two-state solution? The answer to that question will dramatically reshape the Israeli/Palestinian conflict and how the world sees it.

Israeli Prime Minister Benjamin Netanyahu is on the record supporting a two-state solution but many assume he prefers the status quo. If Netanyahu pursues a peace agreement in good faith, he'll lose his right-wing base and risk losing a significant faction in his coalition. It's no surprise he's done little to move the talks forward.

Kerry's framework will outline fixed, defined parameters to guide further talks. The key issues include the 1967 borders; whether Jerusalem can be a shared capital for both states; the Palestinian demand that refugees have the right of return to their former homes in Israel; and the vexed question of security – when and how will Israeli forces withdraw from the West Bank and Jordan Valley. Then there is Netanyahu's additional demand that Palestinians recognise Israel as a Jewish state. Neither Jordan nor Egypt were asked to do so when they signed peace agreements with Israel. So far, Palestinian president Mahmoud Abbas seems unlikely to accede to the demand.

If either leader categorically objects to any principle outlined in the agreement, the talks could be stillborn. To ensure that doesn't happen, Kerry has offered the leaders some wiggle room. Speaking to the Washington Post at the weekend the US Secretary of State said he wanted to allow each side to express their reservations about the framework. This, he says, is "the only way for them to politically be able to keep the negotiations moving."

It's probably safe to assume Kerry's framework has been met with significant hostility behind the scenes. No surprises there.

Neither Netanyahu nor Abbas want to be blamed for the collapse of talks. And for good reason, the stakes couldn't be higher. By appeasing the ultra-right faction in his coalition Netanyahu will open the floodgates to economic boycotts that are already gaining momentum. A "medium-range scenario" prepared by Israeli Treasury shows the Boycott, Divestment and Sanctions movement (BDS) shaves up to 11 billion shekels ($AU3.4 billion) off GDP each year. Israel's GDP was about $AU280 billion in 2011, according to the World Bank.

Abbas, on the other hand risks losing legitimacy with his people for failing to deliver an agreement. After numerous attempts and decades of talks, the Palestinian population desperately wants to see an end to the Israeli occupation. With no deal, the Palestinian Authority would face a crisis, and, according to one extreme scenario, could even collapse.

Kerry has worked meticulously and he's managed to keep the talks largely secure from leaks. Alongside this radio silence, Netanyahu and Abbas have been floating ideas and demands to test domestic audiences. Earlier this month, Abbas proposed a security plan for the West Bank, in which Israeli forces would withdraw within five years, to be replaced by a United States-led NATO force. On Netanyahu's part, he's rejected the "right of return" for Palestinian refugees and their desire for a capital in East Jerusalem. Yet at the same time he floated a contentious proposal for some Israeli settlers to remain in the West Bank under Palestinian rule.

This led to heated showdown between Netanyahu and his ultra-right Economic Minister and coalition partner, Naftali Bennett, who condemned the idea and said Netanyahu was experiencing "ethical insanity". In turn, Netanyahu threatened to sack him unless he apologised. The move was interpreted by some as the PM moving away from the strident pro-settler movement whom Bennett represents within his coalition.

Bennett and his Jewish Home party are widely viewed as the spoiler force in these talks and they do not support a two-state solution. Their alternative is Israeli annexation of most or all of the West Bank and partial or full naturalisation of the Palestinian population - a position that is routinely interpreted as a call for total Palestinian surrender.

However, signs that Netanyahu might sacrifice Bennett and make a politically pragmatic move toward the centre were soon quashed. The following week Netanyahu told his party that he laughs at such suggestions.

"I have no intention of engineering a big bang," he told them. "I don't intend to forgo my tribe."

If Netanyahu is true to his word, it's almost impossible to see how talks will succeed. But failure will usher in the inevitable consequence of more boycotts and an increasingly isolated Israel. The PM knows a centrist government is more acceptable to the world and a two-state solution is ultimately more stable. How he balances his political heart with his pragmatic head will soon reveal if Bibi really is a believer in the two-state solution.

Lisa Main is an Australian journalist living in the Middle East. View her full profile here.